How traders preyed on subsidy to bring in huge stocks of food

A packet of 2kg Jogoo maize meal retailing at Sh115 at Naivas Supermarket on Moi Avenue

NAIROBI, KENYA: Importers took advantage of the Government’s political move to offer subsidies to smuggle in billions of shillings worth of goods without paying taxes.

While the Government sacrificed import duty between April 2017 and October 2017, activities in the shipping of goods into the country went up 22 per cent, according to data tracked by the Financial Standard.

The Government lost Sh2.9 billion in revenue to its expanded subsidy programme that saw maize, milk and sugar brought into the country duty-free.

Commercial and government imports increased to Sh147.9 billion compared to Sh126.6 billion in the same period in 2016.

Treasury Cabinet Secretary Henry Rotich said the Kenya Revenue Authority (KRA) had fallen short of Sh40 billion in the first four months of the 2017/18 (July-June) fiscal year due to fall in customs duty after the government allowed importation of sugar, maize and milk for free to cushion consumers against a sharp rise in inflation.

“We have discussed with KRA on measures of recouping the lost revenue by instituting administrative changes,” he said.

The decision to extend the subsidy programme to December last year meant that importers made an even bigger kill, especially since they had more time to make orders.

These stocks imported cheaply are now being resold at market prices which have risen sharply in the last few weeks, with traders raking in even more obscene profits from the poor implementation of the subsidy policy.

Generally, the value of import duty increased in the period under review to Sh27.3 billion from Sh25.8 billion in 2016.

This was slower than the pace at which the value of imports came in which means that the country could have made more money if it did not give a free hand to the import businesses.

Budgetary allocations

Even as consumers enjoyed cheap unga, and prices of milk and sugar moderated, the government struggled to meet its budgetary allocations and might be forced to suspend certain projects or borrow more to plug the deficit.

Between April and September 2017, 922,381 tonnes of raw maize valued at Sh27.6 billion were brought into the country duty-free.

Most of the maize came from outside the East Africa Community (EAC), meaning they would ordinarily have attracted a duty of 50 per cent.

This was a nine-fold increase from 98,010 tonnes of maize that were imported in the same period in 2016 valued at a paltry Sh2.2 billion.

In the period, sugar imports grew threefold in 11 months to November 2017 compared with the previous year, following the scrapping of duty on the commodity to bridge the local deficit.

By November 2017, imports of sugar had grown three-fold to 971,212 in the period under review from 290,256 in the same period in 2016.

“The significant increase in table sugar imports is ascribed to the huge importation of duty-free sugar between May and August 2017 to mitigate shortage in the country,” a local daily quoted a report from Sugar Directorate as saying.

The report by the national statistician on the balance of payment shows that as of September 2017, imports of 848,686 tonnes of “sugars, molasses and honey” valued at Sh45.9 billion came into the country.

This is nearly five times the 176,117 tonnes of sugar, molasses and honey shipped into the country in the corresponding period in 2016 at a cost of Sh9.5 billion.

Most of the imports of sugar came from outside of Comesa and East Africa. Non-Comesa sugar which may come from as far as Brazil may have enabled the businesses make even more colossal profits since a tonne retailed at Sh36,290 in Brazil against the then prevailing market prices of Sh146,000 a tonne in Kenya.

In the milk sector, the Kenya Dairy Board feigned ignorance on the number of tonnes of milk imported into the country and the price quoted.

Kenya Dairy Board Managing Director Margaret Kibogy told Financial Standard last year that the importation of milk powder was left to the private sector and that the government did not know the price per tonne but each firm applied for a percentage.

Only two major players had access to the milk including the State-owned Kenya Cooperative Creameries and Brookside which is partly owned by the Kenyatta family.

Powder milk

In France where Danone, the partners with Brookside is domiciled, powder milk was trading at Sh200,000 per tonne.

So huge was the subsidy programme that increased imports of food left a hole in the country’s foreign reserves.

“In the third quarter of 2017, the value of imports increased by 20.3 per cent to Sh450.9 billion from Sh374.8 billion recorded in a similar period the previous year. This was mainly on account of increased imports of sugar, maize and petroleum products,” said a report by the Kenya National Bureau of Statistics in Quarterly Balance of Payments.

The huge stocks may now come back to haunt farmers who will find the market swamped by readily available imported maize that is relatively cheaper.